Content thumbnail HSBC Investment Outlook Q1 2023
AI Content Chat (Beta) logo

Global Private Banking Investment Outlook Report Real Estate Higher interest rates have pushed and current owners. As a result, supply at a time of falling demand, up property yields, causing values activity declined 21% YoY in Q3 in the adding further to downward pressure to decline and opening up a US, 37% in Europe and 38% in Asia on values although ‘fire sales’ can widening gap in price expectations (source: Real Capital Analytics). usually be avoided by managers between potential buyers and The sharpest corrections have been deferring redemptions. Withdrawals sellers. We anticipate further recorded in sectors that used to be are also a function of falls in bond capital value declines. Property the most sought after, where property and equity values in portfolios, which fundamentals yields were the lowest and which still have rendered investors over-exposed are generally still healthy, though have the strongest long-term outlook to property and trigger a need for a weakening economy indicates for rental growth and occupancy. portfolio rebalancing. rental growth should slow in the This is most apparent for the logistics Occupier market fundamentals are coming quarters. and residential sectors as strong generally still in reasonable health but Rising rates have triggered a competition between investors for slowing economic growth weighs on widespread increase of property the best assets often implied record leasing demand across all property yields, hitting capital values. low yields and the use of leverage. types. Expansion plans and or costs According to Green Street Advisers, Although values have now fallen can be reduced, putting downward values have fallen by 10-15% in the US sharply for the lowest yielding sectors, pressure on rents and values. Unlike and Europe in Q3 2022. Despite the this mainly reflects a paring back of previous downturns, however, rise in property yields, the spread with gains rather than a change of fortunes. development activity does not bond yields remains historically low, Just as investor demand has been pose a major risk as the profitability pointing further potential declines in curtailed, some open-ended property of developing has been sharply property values. Falling values have funds are dealing with a wave of curtailed by high costs of materials, opened up a widening gap in price redemption requests. To raise cash, labour and debt. expectations between potential buyers they may need to sell assets, adding 38

HSBC Investment Outlook Q1 2023 - Page 38 HSBC Investment Outlook Q1 2023 Page 37 Page 39